Apple Closes Above $600 Post Dividend Announcement

By Tiernan Ray

Apple (AAPL) this morning announced it will initiate a quarterly dividend of $2.65 in its fiscal Q4, which ends in September, and its board approved a $10 billion share repurchase program, to begin next fiscal year and being enacted over the course of three years.

The shares closed the day up $15.53, or 2.7%, at $601.10, their first ever close above $600.

CEO Tim Cook said Apple has “plenty of cash” to run the business.”

We have used some of our cash to make great investments in our business through increased research and development, acquisitions, new retail store openings, strategic prepayments and capital expenditures in our supply chain, and building out our infrastructure. You’ll see more of all of these in the future. Even with these investments, we can maintain a war chest for strategic opportunities and have plenty of cash to run our business. So we are going to initiate a dividend and share repurchase program.

At a share price of $600, that would give Apple a 1.8% annual dividend yield.

Of course, a key detail left out of the press release is how Apple will finance the dividend — e.g., via using existing cash, or using future free cash flow.

Apple’s shares were halted prior to the announcement; the stock’s last quote, at 8:25 am, was $599.32, up $13.75, or 2.4%.

Update: the shares have resumed trading and are now down $1.53 at $584.04.

Update 2: Tim Cook kicked off the conference call by emphasizing “how confident we feel” in the company’s future.

He noted Apple sold 37 million iPhones in the most recent quarter, while having only 9% of the global handset market. He also reiterated his previous remarks that he believes the tablet market will surpass the PC market at some point.

“We are innovating at an incredible pace,” said Cook. He noted the company is investing in new distribution points, including its direct enterprise sales.

“We don’t see ceilings to growth,” said Cook. “”Innovation remains the main objective at Apple, and we will not lose site of that.”

Apple’s cash “has increased rapidly for all the right reasons,” said CFO Peter Oppenheimer, noting cash rose by over $30 billion last fiscal year and by $16 billion in the first quarter.

Cook and Oppenheimer were asked what they thought might be the prospect of increasing the dividend. Oppenheimer said the company would review the dividend with the board quarterly.

Cook clarified that the firm would revisit the topic regularly.

Oppenheimer emphasized that at roughly $2 billion per quarter, Apple will be one of the highest dividend-paying firms. He said Apple didn’t want to tap its overseas cash and incur a tax burden.

When asked about international cash, and how it might be used, Oppenheimer re-emphasized that repatriating the cash would result in significant tax consequences an said Apple had expressed its concerns about tax laws to congress.

Asked about stock splits, Cook said it was something the company had thought about, but that there was little evidence it would help the stock.

Asked about iPads sales over the weekend, Cook said “We had a record weekend and we are thrilled with it.”

Asked about how they arrived at the payout amount, Oppenheimer said “we opted to go with a hybrid approach after doing a lot of analysis and thinking” and listening to shareholders.

“We expect to pay nearly $10 billion in the first year, and that will make us one of the largess dividend payers in the U.S.”

Oppenheimer said the desire to pay out through dividends was balanced with the need to mitigate the effect of employees stock options grants and having enough cash to run the business.

Cook said that the company decided how much domestic cash it needed to continue to “make the most innovative products” but also to maintain “a war chest to do things that today we can’t predict.”

Asked about the domestic cash balance Apple would really need, Cook said there was “no magic number,” and that the company would continually revisit the matter.

Asked about how many Apple employees owned Apple shares and whether the dividend would be an incentive for them, Oppenheimer said there were 17.7 million RSUs unvested outstanding at end of the December quarter.

The stock has now recovered from the pre-market decline and is up $9.20, or 1.6%, at $595.83.

In case you were wondering about the rate of Apple’s cash accumulation, Asymco founder Horace Dediu today offered up his own chart of what it looks like factoring in likely earnings growth minus the dividend and buyback:

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There are 12 comments

MARCH 19, 2012 8:44 A.M.

Phil wrote:

And what exactly would be the difference between using existing cash or future cash? Cash is cash.

MARCH 19, 2012 8:58 A.M.

Joe Barn wrote:

2% dividend rate the stock earnings are growing at well over 20% a year and the stock is at 15 P/E?? Load up the truck.

MARCH 19, 2012 9:00 A.M.

From Press Release wrote:

Aapl will use domestic cash, See the press release "... we anticipate utilizing approximately $45 billion of domestic cash in the first three years of our programs,” said Peter Oppenheimer...."

MARCH 19, 2012 9:15 A.M.

Market Mayhem wrote:

The announcement did absolutely nothing for the share price. Wall Street says it's not good enough. WTF! There are just too damn many dissatisfied investors when it comes to Apple. Apple should have decided to hold onto the cash for its own use. If the dividend offering doesn't bring in any more investor interest, then what's the point. Well, since it doesn't take place until near the end of the year, maybe interest will take time to build.

MARCH 19, 2012 9:25 A.M.

Anonymous wrote:

"Wall Street says it’s not good enough."
It's NEVER good enough for Wall Street. You can never have enough greed!

MARCH 19, 2012 9:36 A.M.

Anonymous wrote:

Apple slips? What does that mean with the stock up $8? Get your title correct - it lessens your credibility.

MARCH 19, 2012 9:42 A.M.

Anonymous wrote:

This is the reasonable and responsible way to initiate a dividend. Yes, AAPL could afford a lot more, but investors respond more favorably towards a dividend that increases steadily over time. AAPL's plan gives them the flexibility to increase the dividend, even if they were to have a couple of mediocre quarters during the next year.

The IRS and Treasury must be all smiles at this news. At $2B per of paid out dividends per quarter, they stand to rake in a huge amount on taxes this year at a 15% tax rate, assuming all dividends are paid out to US taxpayers (probably a bad assumption - I think perhaps 75% are US shareholders, the rest I will assume are overseas investors who don't pay the IRS any taxes). And starting Jan 1 2013, the divvy tax goes up to 20%, so the IRS stands to make $400M *0.75 = $300M in divvy taxes in the calendar year off AAPL shareholders. Isn't double-taxation (on dividends) wonderful? And that's not even counting the cap gains taxes on people who sell AAPL shares.

MARCH 20, 2012 2:50 P.M.

phileasfogg wrote:

Oops, its $300M in divvy taxes per quarter in 2013, not for the whole year. For the whole of 2013, IRS will rake in approx $300M * 4 = $1.2B. And so on for 2014 and future years if the divvy rate isn't increased. Wow!

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.